Insurance risk scoring based on credit utilization ratio

ABSTRACT

Systems and methods are provided for the problem of automatic, algorithm-guided estimation of insurance loss ratio, claims frequency, the probability of excess claims, and other insurance policy performance characteristics for an individual insured or for groups of insured individuals. A time-series-derived Bayesian power spectrum weight is calculated from the frequency of temporal pattern-specific values in terms of intensities at various frequencies of the power spectrum computed from credit utilization ratio (CUR; outstanding balance of debt, as a percentage of credit line available) time-series obtained by the insurer by ‘soft pull’ inquiries submitted periodically to credit-rating agencies, and provides an opportunity to capture and measure the relative magnitude of frequent or unexpected changes in consumer liquidity. The present technology provides a system and method for classifying insurance risk, for insurance risk scoring, or for incorporating a power-spectrum-based temporal pattern-specific weight into an actuarial method to enhance the loss ratio estimation accuracy and statistical financial performance of insurance products and health plans.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.14/839,168, titled “Insurance Risk Scoring Based On Credit UtilizationRatio,” filed Aug. 28, 2015, which claims the benefit of U.S.Provisional Application No. 62/043,032, titled “Insurance Risk ScoringBased On Credit Utilization Ratio,” filed Aug. 28, 2014, each of whichare hereby expressly incorporated by reference in its entirety.

INTRODUCTION

Insurance Risk Scores are typically based exclusively on objective,factual credit report information, including consumer accounts such ascredit cards, retail store cards, mortgages, and auto loans. Alsoincluded in typical insurance risk scores is public record information,including bankruptcies, liens and judgments, and collection accounts.Additionally, Insurance Risk Scores take into considerationconsumer-initiated “hard pull” inquiries associated with their requestsfor new or increased lines of credit. Multiple consumer-generated “hardpull” credit inquiries associated with the shopping for a mortgage orauto loan are de-duplicated on a time horizon of 14 days, to minimizethe impact on their score. All of this factual credit information isreceived by credit rating agencies such as Equifax, TransUnion,Experian, and FICO from tens of thousands of financial institutions,retailers, and court houses on a monthly basis. Typically consumercredit reports and the calculation of a consumer's Insurance Risk Scoredo not include medical history and records, consumer buying habits,checking and savings information, income, and prohibited basischaracteristics identified by the Comptroller of the Currency, whichincludes information regarding marital status, race, age, religion,family status, color, receipt of public assistance, disability, gender,or national origin. To date, no basis characteristic related to patternsof credit utilization ratio are known to have been prohibited.

In their underwriting and pricing process, insurers seek to charge ratesthat are equitable, adequate and not unfairly discriminatory. Theseobjectives are sometimes difficult to achieve because of regulatoryconstraints and insurers' own desires not to discriminate unfairly oract in a manner that is inconsistent with socially acceptable standards.From the company perspective, pricing equity and accurate costprojections are crucial. Credit data can be used to create scores thatin fact provide additional predictive information about future losses.However, using credit history is often perceived to be in conflict withwhat society considers as fair, particularly if the individual's scoreis affected by catastrophic events such as divorce, medical problems orloss of a job.

More than 90 percent of insurers responding (from the top 100 personallines companies) indicated in an American Academy of Actuaries surveythat they currently use credit report data in their auto and propertyand casualty (non-health) insurance underwriting operations. Ten percentuse it for pricing only; 38 percent for underwriting only, and 52percent for underwriting and pricing. Fourteen percent use credithistory on annual renewal; 33 percent use such data duringre-underwriting, and 38 percent claim not to use credit report data atall in the renewal process. However, medical insurance underwriting doesnot typically include credit report data.

The use of credit data in underwriting and pricing of personalautomobile insurance has sparked an intense debate that centers mostlyon the following factors relating to statistical correlation betweencredit data and loss ratio: (1) benefits to consumers, (2)discrimination, and (3) socially acceptable criteria. There are severalpublished studies that show a statistically significant relationshipbetween credit data and loss ratio performance. These studies show thatthis correlation can change in time—but this correlation, howeverstrong, cannot establish a causal relationship. The use of credit datahas allowed insurers to establish that some insured individuals,traditionally classified as “standard,” can qualify as “preferred” whenevaluated by these models. Studies have shown that even insuredindividuals with prior violations or accidents but having good creditbehavior can have better loss ratio performance than insured individualswho have no accidents or violations but who have poor credit.

In the U.S., most state insurance laws prohibit the use of insurancerates that are excessive, inadequate, or unfairly discriminatory.Principle 4 of the Casualty Actuarial Society's Statement of PrinciplesRegarding Property and Casualty Insurance Ratemaking states that, “Arate is reasonable and not excessive, inadequate, or unfairlydiscriminatory if it is an actuarially sound estimate of the expectedvalue of all future costs associated with an individual risk transfer.”Thus, the overall average rate level should be set so that the totalpremium collected from all risks is sufficient to cover the totalexpected costs. Additionally, the individuals' rates should be set suchthat the premium collected from each individual risk, or group ofsimilar risks, accurately reflects the expected costs for thatindividual risk (or group of similar risks).

The use of credit data in decision-making, along with having more easilyaccessible and reliable data, has led to the rapid growth in automatedunderwriting systems that minimize subjective judgment by relying onmore objective, rigorous, data-driven decision processes. Automatedsystems are more predictive, reliable and can improve the integrity ofrisk classification systems. The federal Fair Credit Reporting Act(FCRA), 15 U.S.C. § 1681 et seq. regulates the consumer reportingindustry in the U.S., including firms that furnish data to and use datafrom consumer reporting agencies. Comprehensive changes to the FCRA wereenacted in 2003 when Congress passed the Fair and Accurate CreditTransactions Act of 2003 (FACTA or FACT Act). The FCRA controls theintake and output of consumer reporting data. Many states also havetheir own credit reporting laws.

SUMMARY

This summary is provided to introduce a selection of concepts in asimplified form that are further described below in the detaileddescription. This summary is not intended to identify key features oressential features of the claimed subject matter, nor is it intended tobe used as an aid in determining the scope of the claimed subjectmatter.

Systems, methods, and computer-readable media are provided for the fieldof insurance underwriting, pricing, and loss ratio estimation. Timeseries are formed by (a) retrieving an insured individual's creditutilization ratio (CUR) periodically via ‘soft pull’ inquiries submittedto credit rating agencies, (b) calculating Bayesian power spectra foreach time series formed from a plurality of such time-stamped CURvalues, (c) repeatedly randomly sampling the spectra to calculate themedian likelihood for each, with Bonferroni or other suitable correctionfor timeseries length, (d) scaling the median likelihood values so as tobe on a scale that is commensurate with the weights calculated byconventional insurance risk scoring, (e) combining each scaled medianlikelihood with the corresponding conventional actuarial models andbasis characteristics, and (g) optionally, rank-ordering the resultingset according to the scores to predict which historical loss patternsmost closely resembles the current spectral characteristics of theinsured. Insolvency (liquidity, leverage, default risk) represents aninstantaneous hazard; as soon as liquidity is restored, default riskabates. But insurance risk effects of financial distress, like healtheffects are likely to accrue over time, much as occurs with exposure totobacco or alcohol. Cessation of the exposure does not restore risk tobaseline. The system and method of the present technology allow a systemto assess the effect of frequent or unexpected changes in an insuredindividual's liquidity on physical or psychological stress that maycontribute to the insured individual's health issues, health servicesutilization, and insurance claims. This is likely to be an effectivemeans of mitigating inaccuracies in estimating the loss ratio.

An embodiment determines a measure of financial stress, and uses thismeasure in conjunction with actuarial methods. An embodiment performscredit rating agency “soft pull” inquiries, which may be submittedbi-weekly or monthly, for each insured plan member or policy holder. Theimpact of frequent or unexpected changes in consumer liquidity on healthutilization claims is captured and measured. These frequent orunexpected changes are likely related to stresses experienced by theinsured. A credit utilization ratio (CUR), which may be determined as atime-series of outstanding balance of debt as a percentage of creditline available, is used to calculate a Bayesian power spectrum. The CURenhances estimation accuracy of insurance loss ratio, claims frequency,and probability of excess claims. Further, it augments insurance policyperformance characteristics for an individual or for groups of insuredindividuals.

BRIEF DESCRIPTION OF THE DRAWINGS

Embodiments are described in detail below with reference to the attacheddrawing figures, wherein:

FIG. 1 depicts aspects of an operating system environment suitable forpracticing an embodiment of the invention;

FIG. 2 depicts aspects of an operating computer environment suitable forpracticing an embodiment of the invention;

FIG. 3 depicts a flow diagram of a method for insurance risk scoring, inaccordance with embodiments of the invention;

FIGS. 4A-4C depict a representative display presenting an analysis for afirst individual, consisting of Time Series (TS) FIG. 4A,Autocorrelation function (ACF) FIG. 4B, and Power Spectrum (PS) FIG. 4C,respectively;

FIGS. 5A-5C depict a representative display presenting an analysis for asecond individual, consisting of TS FIG. 5A, ACF FIG. 5B, and PS FIG.5C, respectively;

FIGS. 6A-6C depict a representative display presenting an analysis for athird individual, consisting of TS FIG. 6A, ACF FIG. 6B, and PS FIG. 6C,respectively;

FIGS. 7A-7C depict a representative display presenting an analysis for afourth individual, consisting of TS FIG. 7A, ACF FIG. 7B, and PS FIG.7C, respectively;

FIGS. 8A-8C depict a representative display presenting an analysis for afifth individual, consisting of TS FIG. 8A, ACF FIG. 8B, and PS FIG. 8C,respectively;

FIGS. 9A-9C depict a representative display presenting an analysis for asixth individual, consisting of TS FIG. 9A, ACF FIG. 9B, and PS FIG. 9C,respectively;

FIGS. 10A-10C depicts a representative display presenting an analysisfor a seventh individual, consisting of TS FIG. 10A, ACF FIG. 10B, andPS FIG. 10C, respectively;

FIGS. 11A-11 c depict a representative display presenting an analysisfor a eighth individual, consisting of TS FIG. 11A, ACF FIG. 11B, and PSFIG. 11C, respectively;

FIGS. 12A-12C depict a representative analysis for a ninth individual,consisting of TS FIG. 12A, ACF FIG. 12B, and PS FIG. 12C, respectively;

FIGS. 13A-13C depict a representative display presenting an analysis fora tenth individual, consisting of TS FIG. 13A, ACF FIG. 13B, and PS FIG.13C, respectively;

FIG. 14 depicts a display providing a table showing the statisticalperformance of an embodiment;

FIG. 15 illustratively provides an example embodiment of a computerprogram routine for determining a risk category from a creditutilization time series; and

FIG. 16A-16C illustratively provide an example embodiment of a computerprogram routine for estimating total loss for a risk scoring methodusing a regression model.

DETAILED DESCRIPTION

The subject matter of the present invention is described withspecificity herein to meet statutory requirements. However, thedescription itself is not intended to limit the scope of this patent.Rather, the inventor has contemplated that claimed subject matter mightalso be embodied in other ways, to include different steps orcombinations of steps similar to the ones described in this document, inconjunction with other present or future technologies. Moreover,although the terms “step” and/or “block” may be used herein to connotedifferent elements of methods employed, the terms should not beinterpreted as implying any particular order among or between varioussteps herein disclosed unless and except when the order of individualsteps is explicitly described.

As one skilled in the art will appreciate, embodiments of the inventionmay be embodied as, among other things, a method, system, or set ofinstructions embodied on one or more computer-readable media.Accordingly, the embodiments may take the form of a hardware embodiment,a software embodiment, or an embodiment combining software and hardware.In an embodiment, the invention takes the form of a computer-programproduct that includes computer-usable instructions embodied on one ormore computer-readable media.

Computer-readable media include both volatile and nonvolatile media,removable and nonremovable media, and contemplate media readable by adatabase, a switch, and various other network devices. By way ofexample, and not limitation, computer-readable media comprise mediaimplemented in any method or technology for storing information,including computer storage media and communications media. Examples ofstored information include computer-useable instructions, datastructures, program modules, and other data representations. Computerstorage media examples include, but are not limited to,information-delivery media, RAM, ROM, EEPROM, flash memory or othermemory technology, CD-ROM, digital versatile discs (DVDs), holographicmedia or other optical disc storage, magnetic cassettes, magnetic tape,magnetic disk storage, other magnetic storage devices, and othercomputer hardware or storage devices. These technologies can store datamomentarily, temporarily, or permanently.

As described herein, embodiments of the invention are directed toenabling improvements in loss ratio estimation in insurance underwritingand pricing, in particular in health insurance. A recent concernregarding credit-based scoring systems, in particular insurance riskmodels derived from them, is that proactive actions taken by lenders toreduce potential losses by lowering revolving credit limits. Somecontend that this might spuriously lower a consumer's Insurance RiskScore, penalizing consumers in the form of higher premiums and lessfavorable coverage. In addition, a majority of the creditcharacteristics calculate credit utilization as a function of aconsumer's revolving credit limits combined with original installmentloan amounts. This different approach dilutes the potential impactassociated with the lowering of revolving credit limits.

Various credit parameters, ranging from less severe (payments more than60 days delinquent) to more severe (bankruptcy), may be included in datathat are available from secondary sources. Based on these parameters, ifa key measure of credit quality is having a debt payment that is 60 daysor more past due, then the use of credit characteristics may have adisparate impact on lower income households. Empirical evidence fromindividual experience may confirm this.

It is a common misconception that during a recession virtually everyconsumer's credit score (and, hence, Insurance Risk Score) will decline.Examining recession-associated changes is instructive in that it revealshow the predictive ability of credit-based Insurance Risk Scores ispreserved even in the case when almost 100 percent of the populationexperiences a decline in their Credit Risk Score. Statistically, such ashift in the entire population would likely have little impact oninsurance rates (except to the extent that actual loss performancedeteriorates), since the Insurance Risk Scores differentiate risk amonggroups with varying degrees of loss expectancy. These groupings wouldstill exist as would the ability of insurers to differentiate betweenthem statistically even if a bad economy caused the credit and insurancescores of every member of the population to decline. Conversely, animproving economy raises all credit and insurance scores, and theinsurer's ability to distinguish among groups is not in any wayimpaired.

In an embodiment, the action of lowering revolving credit limits wouldnot significantly affect the individual's Insurance Risk Score, insofaras the Bayesian power spectral density of the de-meaned and de-trendedcredit utilization ratio time series is not materially changed.Revolving credit utilization ratio characteristics are included inCredit Risk Score models, but, by themselves, they are frequently notincluded in the calculation of Insurance Risk Scores. Based uponempirical evidence, relatively few credit utilization characteristics,of dozens that have been tested, are found to be highly correlated toinsurance loss ratio.

The role of stress is important to recognize because it is a precursorto more serious mental health conditions, to less healthful lifestylechoices and behavior, and to exacerbation of existing health conditions,resulting in worsening of insurance loss ratio and claims experience.Stress is widespread in society and in the workplace. Hundreds ofresearch studies have examined how aspects of jobs, organizationalbehavior, and activities of daily living can create stress for consumersand can contribute to mental health conditions and other physical healthproblems.

Events in one's family can be a major source of stress that can manifestitself in the workplace. Many persons in the prime of their workingyears are stressed by caring for both young children and for an agingparent. Many caregivers experience significant employment-relatedconsequences from having to balance greater amounts of time devoted toproviding family support with time at work. For some people, thatstressful path reaches a point where the burdens of family care andworking a job can no longer both be managed.

Many of the health problems of insured individuals can be attributableto worsening public health, with poor diets, growing obesity, smokingand more sedentary lifestyles all playing a part. Some can also beexplained by growing levels of workplace ‘stress’, personal debt, andfamily breakdown and their links to depressive illness. Of course, partof the solution rests with government. It must take the lead in thepublic health arena, encouraging and educating citizens to makehealthier choices in their lives. For individuals, it means taking moreproactive personal responsibility for their lifestyle choices, healthand wellbeing. However, employers and insurers have a role to play too.Partly, this is accomplished by instituting certain incentives for theinsured to behave in specific ways that are salutary for health. Theincentives may be based on contracting by the insured to receive healthpromotion-related rewards or discounted insurance premia, such as forsmoking cessation, weight loss, or pedometer-measured walking 10,000steps per day.

In like fashion, with effective management various acute and chronicstressors of daily life that impose a significant burden on physical andpsychological health may be reduced, averting significant adversephysiological, emotional, behavioral, and financial outcomes.

Among these, cardiovascular disease continues to be a leading cause ofspending and mortality in the United States, and ischemic heart diseaseis the most common type of heart disease. Cardiovascular disease-relatedhealth insurance claims are therefore a convenient index of statisticalrelationships to stress or other factors. Established risk factors forischemic heart disease include diabetes mellitus, disorders of lipidmetabolism, high blood pressure, cigarette smoking, obesity, andphysical inactivity. The role of the work environment or work climate inthe development of heart disease and other health challenges is of greatinterest. Much of the focus is on the role of job stress, financialstress, and perceived employment insecurity, as these factors have allbeen shown to contribute to heart disease. However, it is difficult todevise objective and longitudinal measures of physical and psychologicalstressors that would be practical to use in insurance plan management,health plan management and insurance underwriting.

The epidemiological literature is replete with studies demonstrating therelationship between modifiable health risks and morbidity andmortality. However, there is less direct evidence on the associationbetween modifiable health risks and individual health care expenditures.Recent reviews of published studies examining the financial impact ofhealth promotion programs have concluded that there are goodcorrelational data to suggest that high levels of stress, excessive bodyweight, and multiple risk factors are associated with increased healthcare costs and illness-related absenteeism. Recent reviews have alsoconcluded that health promotion programs are associated with reducedhealth care costs.

A major step forward was taken when Goetzel and colleagues used theHealth Enhancement Research Organization (HERO) database to examine theassociation between ten modifiable health risks and health careexpenditures. The focus of this study and the central unit of analysiswas the individual employee. The study sought to document increasedhealth care expenditures associated with certain health risks at theindividual level. It was found that employees at high risk for poorhealth outcomes had significantly higher expenditures than did employeesat lower risk in seven of ten risk categories: those who reportedthemselves as depressed (70% higher expenditures), at high stress (46%),with high blood glucose levels (35%), at extremely high or low bodyweight (21%), with high blood pressure (12%), and with a sedentarylifestyle (10%). Employees with multiple risk profiles for specificdisease outcomes had higher expenditures than did those without theseprofiles for the following diseases: heart disease (228% higherexpenditures), psychosocial problems (147%), and stroke (85%).Researchers have concluded that stress and other common modifiablehealth risks are associated with increases in the likelihood ofincurring health expenditures and in the magnitude of thoseexpenditures.

Productivity and health have been important themes in job stressresearch for several decades. Some researchers have called for “newmodels” to help stress and productivity. A prominent argument ofresearch using models of job strain is that traditional bureaucratic andFrederic Taylor-esque (i.e., ‘scientific management’) work organizationand management principles stifle the full use of human capital. It iscrucial, therefore, that workers and employers find the optimal balancebetween job demands and high decision making autonomy so that the goalsof individual well-being and productivity can be achieved and sustained.

There is abundant evidence that working conditions in which workersexperience a combination of high job demands and low decision makinglatitude are associated with a range of psychological and physicalhealth problems. The ‘demand-control’ model of stress has been used topredict the risk of heart disease, depression, and other illnesses forwhich lost productivity costs and increased insurance claims can becalculated. These relationships are stronger if workers participate inthe design and implementation process.

In terms of effective interventions, research suggests that lifestyleand work redesigns that afford greater autonomy and decision-makingauthority, more skill discretion, more social supports, and decreasedphysical and psychological demands are associated with better health,lower health services utilization, and fewer medical insurance claims.

A number of studies suggest that the impact of debt on mental health maybe mediated by personal attitudes towards debt, or more specifically‘debt worry’. It is possible, for example, that participants' attitudestowards debt as recorded in the studies also reflect other personalconcerns or variables that may not be measured by a study (for example,current income, expected future income, family financial situation).Where unmeasured, or not controlled for, these variables may also impacton measures of a person's mental health or psychological wellbeing.Similarly, anxiety about debt might reflect a person's general anxietyor psychological outlook. People who score higher on measures of anxietyor depression might be more likely to have a negative view of theirfinances. Although studies indicate a correlation between actual debtsand debt worries, there is also evidence that the relationship betweenthe two is more complex, and may additionally be affected by otherfactors.

Credit-based Insurance Risk Scores and Credit Risk Scores are notidentical. Credit Risk Scores are designed to predict the likelihood ofindividual default risk, while Insurance Risk Scores are designed topredict claims loss ratio. Credit Risk Scores are generally morevolatile because they tend to rely more upon various forms of revolvingcredit utilization, including recent new account openings and recentaccount delinquencies, than Insurance Risk Scores. Although differentaspects of utilization, account openings, and delinquency are containedwithin Insurance Risk Scores, these credit characteristics are defineddifferently and are not weighted as heavily as they are in Credit RiskScores. Prior art Insurance Risk Scores, when compared to Credit RiskScores, tend to place more emphasis on credit characteristics thatdemonstrate a consumer's depth of credit history as reflected by thenumber and type of accounts maintained over time and a longer-term viewof account delinquency likelihood.

Recent results show that borrowers who experience a decline of 10% intheir FICO score (credit quality) after insurance coverage originationincrease their credit line utilization by 15.5%. The present technologyaugments these tendencies by incorporating basis characteristics ofcredit utilization ratio time series Bayesian power spectral density.

For individuals as well as businesses, one of the most commonly usedmeasures is the “current ratio.” The current ratio measures financialliquidity, the extent to which current liabilities are covered bycurrent assets, calculated by dividing current assets by currentliabilities. The current ratio is the most commonly used measure ofshort-term solvency.

Debt management ratios measure the extent to which an entity is usingdebt financing, or financial leverage. Debt management ratios denote thedegree of risk or safety afforded to creditors. The debt ratio, or ratioof total debt to total assets, measures the percentage of funds providedby creditors. Total debt includes both current liabilities and long-termdebt. The lower the ratio, the greater the protection afforded creditorsin the event of liquidation. A debt ratio that exceeds the industryaverage raises a red flag and may make it costly for an entity to borrowadditional funds without first raising more equity capital.

If the entity earns more on investments financed with borrowed fundsthan it pays in interest, the return on the owners' capital ismagnified, or “leveraged.” Entities with relatively high debt ratioshave higher expected returns when the economy is normal, but they areexposed to risk of loss when the economy goes into a recession. Entitieswith low debt ratios are less risky, but also forgo the opportunity toleverage up their return on equity. For public businesses, analysts usetwo procedures to examine the entity's debt: (1) They check the balancesheet to determine the extent to which borrowed funds have been used tofinance productive assets as contrasted with covering operatingexpenses, and (2) they review the income statement to see the extent towhich fixed charges are covered by operating profits. Neither procedureis readily accomplished for entities who are private individuals.

The credit utilization ratio also measures solvency and leverage. Basedon data from credit bureaus and credit card issuers, severalinvestigators have recently found negative correlation between thecredit utilization ratio and Credit Risk Score that is even strongerthan the correlation between credit limit and Credit Risk Score:low-score consumers have much higher credit utilization rates than thosewith higher scores. Causality for this relation may run the other way aswell: high credit card utilization rates may cause low Credit RiskScores over time. Nevertheless, this finding—that consumers with highercredit utilization rates used debit cards more frequently—could implythat consumers with a lower credit score experience lasting creditlimitations—due to lower credit limits, or greater liquidity needs inthe past, or both.

Other attempts or efforts are deficient due to:

(1) Omission of basis characteristics that objectively quantify stressexperienced by the insured over time.

(2) Excessive false-negative rate (financial loss for the insurer;adverse selection; negative percentage error of actual compared toestimated or budgeted amount, covered by contracted premium payments).

(3) Excessive false-positive rate (financial gain for the insurer;positive percentage error of actual compared to estimated or budgetedamount, covered by contracted premium payments). False-positive errorslead to premium price-setting at a higher level than would have beennecessary to insure plan solvency, causing the cost to the insured to behigher.

(4) Heteroskedasticity (scale-dependent variance) of credit utilizationratio and other raw measures of the insured's liquidity, such that useof standard deviation, median absolute deviation from the median, orother measures of dispersion have, in general, low predictive accuracyand precision in regard to estimating future insurance loss ratio,claims incidence, or services utilization intensity.

(5) Many potentially relevant variables that have strong statisticalassociations with health insurance loss ratio are proscribed by lawand/or the Comptroller of the Currency in U.S. (and may be similar inother jurisdictions), e.g. Medical history and records; Consumer buyinghabits; Bank checking and savings account information; Income; Maritalstatus; family status; Race, age, religion, receipt of publicassistance, disability, gender, national origins.

(6) Metrics drawn from a covered individual's self-reported data mayhave deficiencies in some circumstances, such as being subjective;impractical to solicit as a self-report very frequently (e.g. more thantwice per year), propensity for bias, non-reporting, or fraudulentreporting, leading to ‘adverse selection’.

(7) Failure of conventional insurance risk scoring variables to discoverthe detailed multi-scale dynamics of the physical and psychologicsequellae of stress and their impact on health services utilization overtime.

An embodiment establishes a method for ameliorating these limitationsand providing objective, quantitative means for predicting the lossratio. In particular, a method is employed that accurately characterizesphysical and psychological stress associated with frequent or unexpectedchanges in financial liquidity.

Turning now to FIG. 1, there is presented an example operatingenvironment 100 suitable for practicing an embodiment. Example operatingenvironment 100 includes a computerized system for compiling and/orrunning an embodiment of an information architecture that performsdecision support recommendation service. With reference to FIG. 1, anElectronic Insurance Record (EIR) system, such as agency EIR system 160containing an insurance claims database, is communicatively coupled tonetwork 175, which is communicatively coupled to computer system 120. Inan embodiment, components of operating environment 100 that are shown asdistinct components may be embodied as part of or within othercomponents of environment 100. For example, an EIR system 160 may beimplemented in computer system 120. Similarly, a single EIR system mayperform functions for one or more remote EIR systems (not shown).

In an embodiment, network 175 includes the Internet and/or one or morepublic networks, private networks, other communications networks such asa cellular network, or similar network(s) for facilitating communicationamong devices connected through the network. Network 175 may bedetermined based on factors such as the source and destination of theinformation communicated over network 175, the path between the sourceand destination, or the nature of the information. For example,intra-organization or internal communication may use a private networkor virtual private network (VPN). Moreover, in some embodiments, itemsshown communicatively coupled to network 175 may be directlycommunicatively coupled to other items shown communicatively coupled tonetwork 175.

In an embodiment, operating environment 100 may include a firewall (notshown) between a first component and network 175. In such an embodiment,the firewall may reside on a second component located between the firstcomponent and network 175, such as on a server (not shown), or reside onanother component within network 175, or may reside on or as part of thefirst component.

An embodiment of electronic insurance record (EIR) system 160 includesone or more data stores of insurance claims records, which may be storedon storage 121, and may further include one or more computers or serversthat facilitate the storing and retrieval of the claims records. In anembodiment, an EIR system 160 is implemented as a cloud-based platformor is distributed across multiple physical locations. EIR system 160 mayfurther include record systems, which store real-time or near-real-timeuser information, such as purchasing information, loyalty cardinformation, or health record information indicative of insuranceclaims.

Although FIG. 1 depicts an exemplary EIR system 160, it is contemplatedthat an embodiment relies on other servers (not shown) that providepurchasing information service, loyalty card information or healthrecord information from an Electronic health record System.

Example operating environment 100 further includes risk analyst system140 including an Insurance Risk Scoring program and user interface.System 140 is communicatively coupled to an EIR system 160. Althoughenvironment 100 depicts an indirect communicative coupling betweensystem 140 and EIR system 160 through network 175, it is contemplatedthat an embodiment of system 140 is communicatively coupled to EIRsystem 160 directly. Example operating environment 100 further includescomputer system 120, which may take the form of a server, which iscommunicatively coupled through network 175 to EIR system 160, storage121, and system 140.

An embodiment of system 140 includes a user interface operated by asoftware application or set of applications on a client computing devicesuch as a personal computer, laptop, smartphone, or tablet computingdevice. In an embodiment, the application includes Risk Analysis andclassification system reporting insurance risk through a screen displayto a user who operates system 140. In an embodiment, the application isa Web-based application or applet. A user application facilitatesaccessing and receiving information from a user, server or EIR system160 about a specific patient or set of patients for which Insurance Riskis to be evaluated and the application displays results,recommendations, prices, policies, or risk results, for example. In anembodiment, system 140 also facilitates receiving policies for anapplicant from a policy generation system which may reside on system160, for example. System 140 may be used for providing Risk Analysisinformation, such as the information as illustrated and discussed inconnection with FIGS. 4A-14.

In an embodiment, EIR system 160 is a workstation that receives a riskindication such as a loss ratio prediction, or a loss ratio categoryfrom system 140 and EIR system 160 generates a policy and a price basedon a risk indication. In an embodiment, EIR system 160 comprises anelectronic display that presents the results of risk analysis to auser/analyst. In an embodiment, EIR system 160 emits an indication of anincentive program to reduce the premium for the user to present to anapplicant, and provides this information in a message to the user ofsystem 140, where system 140 is a personal communication device. In anembodiment, a personal communication device is a computer, a pager, alaptop computer, a computer workstation, a desktop computer, a tablet, awired telephone, a wireless telephone, cellular telephone, personaldigital assistant, or smartphone. In an embodiment, system 160 providesa short message service (SMS) message, email, audible tone, audibleannouncement, or a display message.

An embodiment of system 140 takes the form of a user interface andapplication, which may be embodied as a software application operatingon one or more mobile computing devices, tablets, smartphones, front-endterminals in communication with back-end computing systems, laptops, orother computing devices. In an embodiment, system 140 includes aWeb-based application or set of applications usable to manage userservices provided by an embodiment. For example, in an embodiment,system 140 facilitates processing, interpreting, accessing, storing,retrieving, and communicating information acquired from credit ratingagency systems 1 (190), i (191) or N (142).

In an embodiment, system 140 includes functionality for processinguser-derived information locally or for communicating the information tocomputer system 120 or system 160, where it may be processed. In anembodiment, the processing may be carried out or facilitated by one ormore software agents, as described below. In an embodiment, theprocessing functionality, which may occur on system 140, and/or computersystem 120, includes signal conditioning, such as removing noise orerroneous information. In an embodiment, processing functionality isoperable to process user-derived information, such as credit dataderived from a soft pull from a credit rating agency from system 190. Inan embodiment, a soft-pull is performed over an interval periodically,e.g. daily, weekly, bi-weekly, monthly, bi-monthly, quarterly, or yearlyfor an applicant and accumulated data is stored in storage 121. In anembodiment, the processing includes classifying the user-derivedinformation acquired for a particular time interval into a category.

Computer system 120 comprises one or more processors operable to receiveinstructions and process them accordingly, and may be embodied as asingle computing device or multiple computing devices communicativelycoupled to each other. In an embodiment, processing actions performed bysystem 120 are distributed among multiple locations such as one or morelocal clients and one or more remote servers. In an embodiment, system120 comprises one or more computing devices, such as a server, desktopcomputer, laptop, or tablet, cloud-computing device or distributedcomputing architecture, a portable computing device such as a laptop,tablet, ultra-mobile P.C., or a mobile phone.

An embodiment of computer system 120 includes computer software stack125, which in some embodiments operates in the cloud, as a distributedsystem on a virtualization layer within computer system 120. Anembodiment of software stack 125 includes operating system 129.Operating system 129 may be implemented as a platform in the cloud.Operating system 129 is capable of hosting a number of services such as122, 124, 126, and 128. An embodiment of services 122, 124, 126, and 128run as a local or distributed stack in the cloud, on one or morepersonal computers or servers such as system 120, and/or a computingdevice 140 running an insurance system risk scoring application. In anembodiment, system 140 operates in conjunction with software stack 125.

In an embodiment, variables indexing service 122 and records/documentsETL service 124 provide services that facilitate retrieving frequentitem sets, extracting database records, and cleaning the values ofvariables in records. For example, variables mapping service 122 mayperform functions for synonymic discovery, indexing or mapping variablesin records, or mapping disparate record systems' ontologies, such asdetermining that a particular credit condition of a first record systemis the same as another credit condition on a second record system. In anembodiment mapping service 122 provides service that facilitatesretrieving frequent item sets, extracting database records, and cleaningvalues of variables in records. In an embodiment, these services mayinvoke software services 126. Software services 126 perform statisticalsoftware operations, and include statistical calculation packages suchas, in an embodiment, the R system (the R-project for StatisticalComputing, which supports R-packages or modules tailored for specificstatistical operations, and which is accessible through theComprehensive R Archive Network (CRAN) at http://cran.r-project.org);R-system modules or packages including tsDyn or similar services forfacilitating implementation of nonlinear autoregressive time seriesmodels, pracma for performing practical numerical mathematicalfunctions, bspec for performing operations related to Baysian inferenceson a discrete power spectrum time series, copula for multivariatedependence analysis with Copulas, CopulaRegression for Bivariate Copulabased regression modeling, MASS for support functions and datasets forVenables and Ripley's mass, mvtnorm for multivariate normal and tdistributions, VineCopula for statistical inference of vine copulas,scatterplot3d for 3D scatter plots, multinbmod for regression analysisof overdispersed correlated count data, zoo for S3 Infrastructure forregular and irregular time series (z's ordered observations), psd forestimating the power spectral density, wavelets for computing wavelets,strucchange for testing monitoring and dating structural change,tseriesChaos for nonlinear time series operations, arulesSequences orsimilar services for facilitating operations such as K-nearest neighbordistance calculations, SIGNAL or similar services such as MATLAB, forperforming signal processing functions such as performing digitalsynthesis of digital filters such as butterworth, chebyshev, elliptical,finite impulse response filter, infinite impulse response, andsavitzky-golay filters and quantreg for computing quantile regressionand related methods such as kuantile and quantile. Software packages 126are associated with services 128, which include IBM infosphere streamprocessing services, Apache Hadoop and Hbase framework, or similarframeworks operable for providing a distributed file system, and whichin some embodiments facilitate or provide access to cloud-based servicessuch as those provided by Cerner Healthe Intent®.

Example operating environment 100 also includes storage (or data store)121, which in some embodiments includes patient data for a candidatepatient and information for multiple patients; variables associated withpatient recommendations; recommendation knowledge base; recommendationrules; recommendations; recommendation update statistics; an operationaldata store, which stores events, frequent itemsets (such as “X oftenhappens with Y”, for example), and item sets index information;association rulebases; agent libraries, solvers and solver libraries,and other similar information including data and computer-usableinstructions; patient-derived data; and health-care providerinformation, for example. It is contemplated that the term data includesany information that can be stored in a computer-storage device orsystem, such as user-derived data, computer usable instructions,software applications, or other information. In an embodiment, datastore 121 comprises the data stores associated with the one or more EIRsystems, such as 160 and computer system 140. Further, although depictedas a single storage data store, data store 121 may comprise one or moredata stores, or may be in the cloud.

Turning briefly to FIG. 2, there is shown one example embodiment ofcomputing system 200 that has software instructions for storage of dataand programs in computer-readable media. Computing system 200 isrepresentative of a system architecture that is suitable for computersystems such as computing system 120. One or more CPUs such as 201, haveinternal memory for storage and couple to the north bridge device 202,allowing CPU 201 to store instructions and data elements in systemmemory 215, or memory associated with graphics card 210, which iscoupled to display 211. Bios flash ROM 240 couples to north bridgedevice 202. South bridge device 203 connects to north bridge device 202allowing CPU 201 to store instructions and data elements in disk storage231 such as a fixed disk or USB disk, or to make use of network 233 forremote storage. User I/O device 232 such as a communication device, amouse, a touch screen, a joystick, a touch stick, a trackball, orkeyboard, couples to CPU 201 through south bridge 203 as well. Thesystem architecture depicted in FIG. 2 is provided as one example of anynumber of suitable computer architectures, such as computingarchitectures that support local, distributed, or cloud-based softwareplatforms, and are suitable for supporting computing system 120.

Returning to FIG. 1, in an embodiment, computer system 120 is acomputing system made up of one or more computing devices. In anembodiment, computer system 120 includes an adaptive multi-agentoperating system, but it will be appreciated that computer system 120may also take the form of an adaptive single agent system or a non-agentsystem. Computer system 120 may be a distributed computing system, adata processing system, a centralized computing system, a singlecomputer such as a desktop or laptop computer or a networked computingsystem.

In an embodiment, computer system 120 is a multi-agent computer systemwith agents. A multi-agent system may be used to address the issues ofdistributed intelligence and interaction by providing the capability todesign and implement complex applications using formal modeling to solvecomplex problems and divide and conquer these problem spaces. Whereasobject-oriented systems comprise objects communicating with otherobjects using procedural messaging, agent-oriented systems use agentsbased on beliefs, capabilities and choices that communicate viadeclarative messaging and use abstractions to allow for futureadaptations and flexibility. An agent has its own thread of controlwhich promotes the concept of autonomy.

In an embodiment, a corporate benefits analyst operates system 140, fora uniformly priced company health service plan, which is available toall employees offering plans at the same price. In an embodiment theanalyst obtains voluntary permission from employees at enrollment timefor the employee to participate in an incentive program to receive arebate, or discount on the premium for participation in a health riskassessment and/or reduction program. Analyst system 140 queries thecredit rating agency systems 191, 190 and 142 periodically obtainingsoft-pull data for each enrolled employee, and the raw data is stored instorage 121. As a result of processing the credit time history, asdisclosed further herein, the analyst system 140 determines a riskcategory for an incentive program enrollee, such as, likely to increasein debt-load, or erratic debt-load, or likely to enter a high risk offinancial stress. In an embodiment, the category is selected based on apredictor that predicts an increased frequency of healthcare visits atsome point in the future based on a current history of personalfinancial records. In an embodiment, the category is correlated withclaim amount. In an embodiment the category is correlated with aquantifier that incorporates through a mathematical equation both claimfrequency and claim amount into a composite score. In an embodiment thecategory of enrollee that has been identified is communicated to theanalyst in the form of a text alert, e.g. “enrollee John Doe is likelyto enter a high risk financial stress region in one year, recommendincentive X, for contact at JohnDoe@gmail.com.” Where X may be anincentive consisting of one or more of: providing discounted financialeducation service, providing discounted stress management service,providing reward incentives such as a greater discount on healthcareinsurance, free meals, drinks, coupons, etc. if John Doe completes acompany provided mitigation service such as visiting a personal financecoach. In an embodiment a message to the analyst indicates the frequencyof high stress present in an applicant pool, while keeping theidentities confidential, so that the analyst is able to makerecommendations for funding mitigating services. For example, on thebasis of such information, a free course is offered to all employees forreducing financial stress, and free follow-up given anonymously, withoutthe analyst knowing the particular details for any individual ofunderlying financial data or category. In an embodiment, a plan offers athree-tier price level, with a first, highest level available to all whowish to keep their financial records private, a second discounted levelavailable to those who allow their records to be accessed, but who havepoor financial performance, and a third, most discounted level availableto those who allow their records to be accessed, and demonstrate a lowfiscal stress life style through the testing described herein.

Out of necessity, astrophysicists who study gravitational waves havedeveloped techniques that extract the maximum amount of information fromshort time series that arise from brief events or short time series. Thesame mathematical methods that are used in empirical identification oftime series associated with gravitational waves can be fruitfullyapplied to the problem of identifying other short time series, includingtime series that arise in health and health care contexts.

The existence of gravitational waves has been inferred from changes inthe orbital periods of several binary pulsars, such as PSR 1913+16.However, gravitational waves have not yet been directly detected onEarth because of their extremely small effect on matter. ‘Orbitallifetime’ is a characteristic property of celestial objects that aregravitational radiation sources. Orbital lifetime determines the averagenumber of binary stars in the universe whose gravitational waves arelikely to be detectable. Short-lifetime binaries produce strong,readily-detectable gravitational radiation but are rare. Long-lifetimebinaries are more numerous but are emit gravitational waves that areweak and hard to detect. The ground-based instrument called LIGO (theLaser Interferometer Gravitational-Wave Observatory; two observatories 3km apart) is most sensitive in the frequency band (30 Hz to 7 KHz) wheretwo neutron stars are about to merge.

The time frame for merger or coalescence lasts only a few seconds. TheLIGO or similar instruments must detect this “blink” of gravitationalwaves emitted over a few seconds out of a million-year orbital lifetime.It is calculated that only about once per decade or so does acoalescence of two neutron stars happen in a manner that could bedetected by LIGO. The Laser Interferometer Space Antenna (LISA; threespacecraft 5 million km apart, flying in a triangle formation) is aplanned collaboration between the U.S. space agency, NASA, and theEuropean space agency ESA. If completed, LISA would be most sensitive inthe frequency band between 0.1 mHz and 100 mHz, where coalescence ofmassive black holes or galactic binaries would be detected in the finalmonths leading up to merger.

In astrophysics, binary systems of objects that radiate gravitationalwaves may, over time, experience a decrease in the distance between theobjects. This causes the emitted waves' frequency and amplitude toincrease over time. The swept-frequency pattern is known as a ‘chirp’.Other types of objects that radiate gravitational waves include spinningneutron stars, whose waves' frequencies and amplitudes follow arecurrent, periodic cycle. In the case of the gravitational collapse ofmassive stars, resulting in supernovae, the patterns of gravity waveemission are far more complex and burst-like, with chirp-up andchirp-down motifs with frequencies ranging over 2 or 3 or more orders ofmagnitude in the frequency domain.

As noted above, gravitational wave bursts can have a very shortduration, so current GW detector design has to take this into account.There are approximately 3×10{circumflex over ( )}10 msec per year, soeven a fluctuation that has a probability of 10{circumflex over ( )}−10of occurring is likely to occur in one year of data. In order toeliminate most false-positive signals, a signal-to-noise ratiothreshhold is often used or, in some cases, multi-detector coincidencediscrimination. But in insurance underwriting, there may be no need forcoincidence discrimination by multiple events synchronously incidentupon two or more ‘detectors’. Ordinarily, each event is incident upononly one insured. An embodiment, therefore utilizes a gravitational waveanalytic method that does not depend on multi-detector coincidencedetection.

Furthermore, traditional time-series analysis and forecasting methodsare highly sensitive to the sequence in which events occur. Van den Bergdescribed an example where the frequency domain power spectrum of a timeseries s(t) can accurately establish the probability of the identity ofan object when ordinary human and time-series methods fail to identifythe object correctly. The power spectrum of a classical symphony orother musical work reveals in each time segment the dominating key,through the pattern of spectral intensities at frequencies associatedwith fundamentals and harmonics. If the sections of the musical work areplayed in a different order, the power spectrum would not change, butthe ear and the mind, which make time-frequency analysis, perceive avery different content then compared to how the original symphony isperceived. To avoid excessive sensitivity to arbitrary differences inthe sequencing of events, an embodiment relies on a frequency-domainpower spectrum analysis method to detect predominant frequencies andmotifs.

On a finite segment of length delta-t, the resolution in frequency is1/delta-t. We can give up fine resolution in frequency-space but, by sodoing, gain information about when an event happened. Therefore, in oneembodiment, rather than working in frequency-space with arbitrarily goodresolution, we operate in the time-frequency plane, achieving a goodcompromise between the accuracy in frequency and the accuracy in time.This has advantages when we aim to detect transient phenomena, such asgravitational wave bursts or irregular alternations of patterns ofcredit utilization ratio changes (CUR motifs).

In this regard, it is a commonplace that people naturally experience‘epochs’ in their personal financial history. Each epoch is associatedwith characteristic patterns and rates of spending and, often, healthservices utilization. The temporal event motifs of chronic conditionslike FICO score <600 or FICO score >800 are distinct and different frommotifs associated with conditions such as arise with financial shocksthat accompany major family events, like undertaking or retiring majormortgage or installment debt, birth of a child, children's entry intocollege, divorce, death of a member of the immediate family, retirementfrom employment, and so forth. The motifs associated with decliningliquidity are punctuated by ‘ups-and-downs’, but the epochs' durationsand successors are not, in general, as predictable as for the conditionsnoted for ‘exacerbations-and-remissions’. Through power spectrumanalysis methods the offset of one epoch and the onset of a new epochcan often be detected from time series, within a span of 3 or 4 eventsor measurement periods.

An embodiment treats the median power spectrum likelihood ascertained byBayesian Markov Chain Monte Carlo simulation as one marker or ‘weight’that measures instability of credit utilization ratio time series and,optionally, may measure the similarity of the record associated with thecurrent entity to records from putative matching entities stored in thetarget database. In an embodiment, a distance between a referencespectrum ref1 and the present spectrum estimate is found, and thedistance d1 is compared to a distance threshold Td to determine whetheror not the likelihood measure d1 is below a Td. When the likelihoodmeasure d1 is below Td then an adverse loss ratio or excess claimcondition is predicted. When the likelihood measure d1 is above Td thenan acceptable loss ratio or an acceptable claim frequency is predicted.

Turning now to FIG. 3, there is depicted in 300 a representative flowdiagram of insurance risk decision processing. In an embodiment, a riskestimate is formed as a predictor of loss. In an embodiment the lossratio experienced for an individual in the claims database is computedas a ratio of cost to the difference of revenues and cost. At 310 thecurrent entity of interest is bound to the data to form data.frame(attributes and current data). The person being studied for riskassessment is associated with a data frame for analysis. At 320 theGroups are determined via Basis Characteristics. For example, there maybe different groups of insured individuals that are separately groupedfor analysis purposes. A family plan insurance enrollee, for example, isstudied as a member of the family group, who, no doubt will have ahigher number of claims associated, on average, than an individualenrollee, all other things being equal. Another example of determininggroup is high, medium, or low deductible plans. The high deductible planenrollee is likely to have fewer claims than a low deductible enrollee,thus in an embodiment, the model is formed for each group, andpredictions are made with a knowledge of the group modeled.

At 330 a “soft Pull” credit information time series is formed. In anembodiment data is originally drawn from a credit agency such as 190, ona periodic basis, e.g., daily, weekly, bi-weekly, monthly, quarterly,etc. and stored in operational data store 325. In an embodiment asliding window of data is formed from the raw data forming a minimumanalysis window. In an embodiment a 24 month window is used for inputtime series. In an embodiment, a window length of 24 samples is used. At340 the raw credit utilization ratio values are scaled to put all dataon the same interval range and meaning. Different reporting agencies mayhave different periods or conditions for reporting soft-pull data, andso this step, when used, mitigates any potential agency bias.

Beginning at 350 and continuing through 360, and 370 to 380, a method ofdetermining a normalized likelihood weight from time series data isprovided. Additional information about determining a normalizedlikelihood weight from a time series is provided by U.S. patentapplication Ser. No. 13/874,961 titled “System and Method for RecordLinkage,” filed on May 1, 2013, which is herein incorporated byreference in its entirety.

At 350 the time series is cast as a time series datatype. In anembodiment, the time series is projected beyond the observed time usinga linear trend extension of the last six months of samples to project atrend into the next six or eight months of samples. In an embodiment,the linear projection is capped, so that the projection does not extendabove 100% credit utilization. In an embodiment the most recent samplesare mirrored to project behavior for future months. In an embodiment,the record is extended into the future to form a power of two samplesize such as 32 samples. In an embodiment, the time series is created ata high sampling rate such as a daily basis or a weekly basis, and thedata is reduced to a monthly value by taking the peek credit utilizationover a monthly window to form the time series. In an embodiment, awindowing method is applied to minimize a discontinuity at the edge ofthe sample window. In an embodiment, records are overlapped and windowedto form two parallel time series records, and two resultant powerspectrum estimates, and the resulting power spectra area added to form apower spectrum estimate. In an embodiment, the overlapped records onlydiffer by a single month of data.

At 360 the Bayesian power spectra is computed for the time series. In anembodiment, the R-System package bspec is used. In an embodiment, apower spectrum estimate is formed using one of a wavelet transform, adiscrete cosine transform, a discrete fourier transform, a periodogrammethod, a Bartlett method, a Welsh method, and an autoregressive movingaverage estimate. In an embodiment, the low frequency terms are used,and the high frequency terms are discarded. In an embodiment only thelowest eighth of the frequency terms are kept. In an embodiment thelikelihood (probability) of each spectrum is calculated by iterativelypermuting the spectrum and sampling the resulting permutations byBayesian Markov Chain Monte Carlo simulation. In an embodiment 500iterations are computed, and the median likelihood for each entity isretained.

In an embodiment the entropy is computed by one of the Shannon entropy,symbol entropy, approximate entropy or Chao-Shen entropy. In anembodiment the disorder in the spectrum is quantified and used as ameasure of disorder in a financial time series.

In an embodiment, a variability statistic such as entropy is calculated.In an embodiment the entropy is computed by one of the Shannon entropy,approximate entropy, or Shannon Renyi entropy. In an embodiment avariability statistic over the raw CUR series is calculated. In anembodiment, a variability statistic and/or entropy is calculated from aseries as provided in U.S. Provisional Patent Application 61/879,792titled “Personal Analysis and Chronotherapy,” filed on Sep. 19, 2013,which is herein incorporated by reference in its entirety.

In an embodiment a variability statistic is calculated iteratively aseach observation sample, such as monthly sample is added.

At 370 the likelihood values for all power spectra are optionally sortedand rank-ordered.

At 380 The resulting series is scaled to a range such as (0,1), tocalculate a normalized power spectrum likelihood weight.

At 390 a distance is optionally calculated between the resultantspectrum and one or more reference spectra. A number of referencespectra may be chosen according to classification criteria, such asidentifying clusters for choosing a threshold that is commensurate withthe underlying pattern. For example, ref1 typifies cluster1, ref2typifies cluster 2, ref3 typifies cluster 3. In an exemplary embodimenta distance is calculated from the reference spectra to each of ref1,ref2, and ref3, and if the distance is small between ref3 and theresultant spectrum, then the cluster 3 threshold is used at 393 ratherthan the default threshold. Other reasons for calculating distancesmight include tracking the spectrum change month to month, or adaptingthe underlying reference model over time. Other reasons for calculatinga distance include looking for aberrant patterns from the past that havebeen associated with very poor individual claims performance In such ause case, an aberrant pattern is identified by checking each case of badindividual claim performance, and testing the distance of the use casefrom other, non-aberrant cases across the spectrum of users. In anembodiment machine learning is used to identify an aberrant patternworthy of looking for in the future.

In an embodiment distance is a vector norm formed over the differencevector. In an embodiment the norm is the 2-norm or euclidean distance.In an embodiment, the distance is the p-norm. In an embodiment thedistance is the 1-norm or sum of absolute values of elements. In anembodiment the norm is the infinity norm, or effectively the maximumabsolute value over the set of elements.

In an embodiment, variability is taken as an indication of stress. In anembodiment percentiles are calculated over the interval from the CURdata, including in an embodiment, variability or entropy. In anembodiment, a stress statistic is formed to represent the stress of theapplicant for incorporation into an actuarial model of risk. In anembodiment a stress statistic is formed over a time series representingvariability of the CUR time series. In an embodiment the stressstatistic is formed by computing one or more of mean, median, mode,standard deviation, variance, skewness, kurtosis, mean absolutedifference, median absolute difference, a rank order statistic, anabsolute difference, a peak value, a coefficient of variation, and apeak difference. In an embodiment, adjacent values in a series arecompared by forming a first adjacent absolute difference statistic and asecond adjacent absolute difference statistic, and so on until a kthadjacent absolute difference statistic is calculated. In an embodimentdisorder is quantified as the sum of the averages of the first kabsolute difference statistics. In an embodiment k=3. In an embodimentk=5.

In an embodiment a risk category such as high risk, moderate risk, orlow risk is computed from the stress statistic. In an embodiment apercentile of a statistic is identified for the applicant. In anembodiment the applicants in a pool that are among the top X % ofvariability or entropy are identified as high stress. In an embodimentthe applicants in a pool that are among the bottom Y % are identified asbeing low stress. For example, the highest 10% of entropy are determinedto be in a high variability regime with increased stress, and the bottom20% are deemed to be in a regime with decreased stress. In anembodiment, percentages are identified in an insurance coverage senseare calculated. In an embodiment one or more stress statistics are usedas an input into an actuarial model that calculates one or more ofinsurance risk score, predicted insurance loss ratio, predictedannualized claim number, likelihood of excess claims, and other indeces.In an embodiment amount of disorder is taken as a reflection of stress.

At 393 a decision is formed, e.g. by comparing the median posteriorprobability to a threshold. If the probability is greater than thechosen threshold, the method proceeds to 395 where a favorable claimscondition is predicted such as an acceptable loss ratio or claimsfrequency is below population norms. In an embodiment a claim riskcategory is stored, e.g. in operational data store 325. In anembodiment, at 395 a favorable claim condition is predicted anddisplayed as shown, e.g. in FIGS. 10A-10C. If the probability is lessthan the threshold, the method proceeds to 397 where an unfavorableclaims condition is predicted such as adverse loss ratio or excessiveamounts of claims. In an embodiment, at 397 a claim risk category isstored, e.g. in operational data store 325. In an embodiment, at 397 anunfavorable risk condition is displayed as shown in one or more of FIGS.7A-7C. An embodiment selects the threshold weighing the relativefinancial costs of an estimated false positive rate against the costs ofan estimated false negative rate. An embodiment selects the threshold toidentify a certain fraction of the population as determined to be ofhigher risk. For example, in an embodiment in which the financialcoaching services are provided free of charge, the top N employees couldbe identified as most likely in need of stress-reducing financialcoaching. In an embodiment, a low-risk pool, such as the bottom 5% ofrisk is identified as a pool that would be desirable clients to attract,or as meriting a lower cost-group.

In an embodiment, at 393 a decision is formed by comparing a number ofdistance measures to a threshold, so that the method proceeds to 395when all of the distances compared are greater than the correspondingthresholds for each test, and predicts that the loss ratio is acceptableor the claims frequency are in accord with population norms. When atleast one of the distance measures are less than a threshold, the methodproceeds to 397 where an adverse loss ratio is predicted or excessiveclaims frequency is predicted.

In an embodiment, at 393 a likelihood measure is chosen to be near zerowhen a calculated distance is within a tolerance of zero, and otherwisethe likelihood is determined to be a reciprocal of the distance measure.In an embodiment a likelihood measure is chosen to be near zero when thesum of the distance measures is within a tolerance of zero, andotherwise the likelihood measure is determined to be a reciprocal of thesum of the distance measures.

Continuing with FIG. 3, and approaching the algorithm performance fromanother vantage point, a flow diagram is provided which illustrates anembodiment of a system and method for generating a list of claimperformance predictions.

An embodiment includes the following steps:

1. Bind the record of an entity for which it is desired to find any andall matching entities in the target system.

2. Optionally, determine the group to which the entity belongs, based onpolicy type or conventional basis characteristics.

3. Perform “soft pull” inquiry for preferably not less than 24 months ofcredit utilization ratio data, from one or a plurality of credit ratingagency records.

4. Scale the raw CUR values if necessary (for example, to a unifiedscale from 0.0 to 1.0, or to a unified scale from 0 to 100).

5. Take the x.

6. Scale the credit utilization values to a standardized scale (forexample, 0 to 1 or 0 to 100 floating-point).

7. Calculate power spectra for each time series from Step 6.

8. Calculate the likelihood (probability) of each spectrum byiteratively permuting the spectrum and sampling the resultingpermutations by Bayesian Markov Chain Monte Carlo simulation, preferablyexecuted not less than 500 iterations, retaining the median likelihoodfor each entity.

9. Sort and rank-order the median likelihood values.

10. Normalize the likelihood values from Step 9 to lie within the range(0,1) to form a power spectrum weight (PS_wt) for each entity.

11. Determine for each entity whether the power spectrum weight of Step10 exceeds an heuristic threshold, or utilize the power spectrum weightas an Insurance Risk Score independently from other actuarial models andmethods.

12. Optionally, enter the value of the power spectrum weight or atransformed variable derived from the power spectrum weight into anactuarial model in combination with a plurality of other basischaracteristics variables.

An embodiment of the flow diagram of FIG. 3 is shown in greater detailin the computer program routine shown in FIG. 15. The total loss may beestimated using a regression model as demonstrated in the programroutine shown in FIGS. 16A-C.

Turning now to FIGS. 4A-4C, there is shown therein a representativeanalysis for a first individual over a 24 month interval as depicted inthe originating time series (FIG. 4A), the resultant autocorrelationfunction (FIG. 4B) and the resultant Bayesian Power Spectrum with errorbars (FIG. 4C). Representative data for the first individual shows a carpurchase which happened at some time after the 14th month. This carpurchase resulted in a hard pull of the credit information of theapplicant from a credit agency. For this case, the underlying modelproduced a Median posterior Bayesian likelihood near zero and thereforepredicted excess claims in the subsequent 12 month interval, since aprobability threshold of about 10⁻⁵ is used for the illustratedembodiment. There were no excess claims experienced in this case for thesubsequent 12 month interval.

Turning now to FIGS. 5A-5C, which presents a case analogous to FIGS.4A-4C for a second individual with completely flat CUR time series ofzero ratio. Since CUR is ordinarily defined as the amount of alloutstanding balances on all credit cards divided by the sum of thelimits of the credit cards, and is typically expressed as a percentage.FIG. 5A depicts a person with no balance, and no activity over theinterval. Since the probability is still below the threshold, theembodiment depicted does not flag the second individual as likely tohave excess claims in the subsequent 12-month interval. The secondindividual is living debt-free. Notice the results would be the same fora person who was not allowed to carry any debt balance, because he hadnot been issued any credit cards with allowed balances.

Turning now to FIGS. 6A-6C, which presents a case analogous to FIGS.4A-4C for a third individual with completely flat CUR time series but asmall (3%) balance that remains for the interval. The decision for thethird individual is the same as for the second individual. Thus theillustrated embodiment makes a similar decision even if an individualcarries a stable load of debt, as opposed to living debt-free.

Turning now to FIGS. 7A-7C, which presents a case analogous to FIGS.4A-4C for a fourth individual who has been building debt balance for twoyears. The illustrated embodiment decides based on the power spectrumthat excess claims are likely in the subsequent 12 month interval.

Turning now to FIGS. 8A-8C, which presents a case analogous to FIGS.4A-4C for a fifth individual who has an erratic balance over the twoyears. The illustrated embodiment decides based on the power spectrumthat excess claims are likely in the subsequent 12 month interval.

Turning now to FIGS. 9A-9C, which presents a case analogous to FIGS.4A-4C for a sixth individual who has an erratic and balance over the twoyears, with a recent trend toward increasing balance and instability.The illustrated embodiment decides based on the power spectrum thatexcess claims are likely in the subsequent 12 month interval.

Turning now to FIGS. 10A-10C, which presents a case analogous to FIGS.4A-4C for a seventh simulated individual who has had a small budgetingvariation has curtailed it over the two years. The illustratedembodiment decides based on the power spectrum that excess claims arenot likely in the subsequent 12 month interval. In an embodiment, asmall amount of stable variation like the present case is used to selecta threshold, for example, choosing the threshold as a factor smallerthan the resultant value, e.g. a factor of 2 or a factor of 5, or afactor of 10.

Turning now to FIGS. 11A-11C, which presents a case analogous to FIGS.4A-4C for an eighth simulated individual who has had a small budgetingvariation but has curtailed similar problems in the past over the twoyears. The illustrated embodiment decides based on the power spectrumthat excess claims are not likely in the subsequent 12 month interval.

Turning now to FIGS. 12A-12C, which presents a case analogous to FIGS.4A-4C for an ninth individual who is carrying a large and variablebalance over the two years. The illustrated embodiment decides based onthe power spectrum that excess claims are likely in the subsequent 12month interval.

Turning now to FIGS. 13A-13C, which presents a case analogous to FIGS.4A-4C for an tenth individual who is carrying a small and variablebalance over the two years. The illustrated embodiment decides based onthe power spectrum that excess claims are likely in the subsequent 12month interval. This example thus presents a false-positive result.

FIG. 14 illustrates performance of a personalized insurance risk scoringusing credit utilization time series. A series of 1,002 subjectsreceived informed consent according to applicable U.S. law andregulations. Measurements of subjects' credit were collected via monthly“soft pull” inquiries to credit rating agencies for each subject for aperiod of 24 months. Records were randomly selected from a health planrecords data warehouse (analogous to an EIR) containing 100% of claimsthat are incident upon the plan during the year subsequent to themeasurement period. The personally-identifiable information was removedin conformance with U.S. HIPAA law and regulations, and thede-identified data were stored in a separate, secure database. We recastthe data in the form of time series, and analyzed the sequences usingthe open-source R statistical package bspec. The results shown in FIG.14 indicate that there were about 21 false positives in the pool, for afalse positive rate of about 2%.

Accurate loss ratio estimation is vital to the financial performance ofinsurance products and health plans. In an embodiment an applicationservice enables improvements in loss ratio estimation in insuranceunderwriting and pricing, particularly in health insurance.

Stress affects claims because it is a gateway to serious healthconditions, to less healthful lifestyle choices and behavior, and toworsening existing health conditions, resulting in deterioratinginsurance loss ratio and claims experience.

Stress is widespread in society and in the workplace. Hundreds ofresearch studies have examined how aspects of jobs, organizationalbehavior, and activities of daily living can create stress for consumersand can contribute to mental health conditions and other physical healthproblems. Events in one's family can be a major source of stress thatcan manifest itself in the workplace. Many persons in the prime of theirworking years are stressed by caring for both young children and for anaging parent. Many caregivers experience significant employment-relatedconsequences from having to balance greater amounts of time devoted toproviding family support with time at work.

Insurance Risk Scores must be based exclusively on objective, factualinformation, including consumer accounts such as credit cards, retailstore cards, mortgages, and auto loans. Public record information,including bankruptcies, liens and judgments, and collection accounts arealso permitted. All of this factual credit information is received bycredit rating agencies such as Equifax, TransUnion, Experian, and FICOfrom tens of thousands of financial institutions, retailers, and courthouses on a monthly basis.

To date, no basis characteristic related to patterns of creditutilization ratio or other information in credit reports has been knownto be prohibited by the Comptroller of the Currency, for use ininsurance underwriting. The present technology solves the challenge todiscover how such information relates to health claims experience andservices utilization.

An application service performs periodic, ongoing “soft-pull” retrievalsof an insured individual's credit utilization ratio or CUR. The CUR isthe percentage of the total lines of credit that are currently beingused (currently unpaid balances). Bi-weekly or monthly values areassembled into a time series for each insured, and a Bayesian powerspectrum is calculated. A mathematical model calculates the amount ofirregular or chaotic variability (entropy), and the Bayesian probability(spectral likelihood) is also computed. The result is a measure thatcorrelates with the number and size of insurance claims. An embodimentfocuses on medical or health-related claims. In an embodiment empiricalfinancial stress variability is used as a relationship to determineclaim risk for other insurance types such as property, auto, life,casualty, etc.

In other words, the amount of credit extended that is used by theinsured has only a weak relationship to claims experience, butspectral-analytic features of the variability in the CUR are stronglyand consistently related to claims. An application service provides anew and important measure of financial stress that is distinct fromtraditional actuarial measures and distinct from “macro” financialmetrics like the CUR itself. The underlying metric provides an importantnew predictor of health-related financial risk that works hand-in-handwith conventional actuarial models.

In an embodiment an application service is embedded as a component in anexisting model for plan and product management, premia-setting,cash-reserving, and other purposes.

Financial Stress is related to Health increased insurance claims. Anapplication service predicts the effect of financial stress on futurehealth claims that can arise in several ways. A number of studiessuggest that the impact of debt on mental health may be mediated bypersonal attitudes towards debt or, more specifically, “debt worry.” Itis possible, for example, that participants' attitudes towards debt asrecorded in the studies also reflect other personal concerns orvariables that may not be measured (for example, current income,expected future income, family financial situation).

Where unmeasured or not controlled for, these variables may also impactthe measures of a person's mental health or psychological wellbeing.Similarly, anxiety about debt might reflect a person's general anxietyor psychological outlook.

People who score higher on measures of anxiety or depression might bemore likely to have a negative view of their finances. Although studiesindicate a correlation between actual debts and debt worries, there isalso evidence that the relationship between the two is more complex, andmay additionally be affected by other factors.

Although the invention has been described with reference to theembodiments illustrated in the attached drawing figures, it is notedthat substitutions may be made and equivalents employed herein withoutdeparting from the scope of the invention. For example, additional stepsmay be added and steps omitted without departing from the scope of theinvention.

Many different arrangements of the various components depicted, as wellas components not shown, are possible without departing from the spiritand scope of the present invention. Embodiments of the invention havebeen described with the intent to be illustrative rather thanrestrictive. Alternative embodiments will become apparent to thoseskilled in the art that do not depart from its scope. A skilled artisanmay develop alternative means of implementing the aforementionedimprovements without departing from the scope of the invention.

It will be understood that certain features and subcombinations are ofutility and may be employed without reference to other features andsubcombinations and are contemplated within the scope of the claims. Notall steps listed in the various figures need be carried out in thespecific order described.

The invention claimed is:
 1. A non-transitory computer-readable storagemedia having computer-executable instructions embodied thereon that,when executed by one or more processors, facilitate a method comprising:receiving, via the one or more processors, soft pulled applicant creditutilization data; determining, via the one or more processors, a softpulled time series for the applicant credit utilization data;generating, via the one or more processors, a structured time series byscaling the soft pulled time series; determining, via the one or moreprocessors, a frequency domain power spectrum based on the structuredtime series; determining, via the one or more processors, values for aspectrum likelihood measure based at least in part on the frequencydomain power spectrum; scaling the values of the spectrum likelihoodmeasure to produce a power spectrum weight (PS_wt) value for anapplicant; generating, via the one or more processors, a composite riskscore for the applicant by combining the PS_wt values with a pluralityof actuarial model basis characteristics; comparing, via the one or moreprocessors, the likelihood measure to a probability threshold;determining, via the one or more processors, a resultant insurance riskcategory from the result of said comparison; and storing, in anoperational data store, the resultant insurance risk category.
 2. Themedia of claim 1, the method further comprising: providing an incentiveto the applicant based at least in part on the resultant insurance riskcategory wherein the structured time series is scaled based on astandard interval range.
 3. The media of claim 1, the structured timeseries comprises a predicted future time series.
 4. The media of claim1, wherein determining values for the spectrum likelihood measurecomprises using at least one of a wavelet transform, a discrete cosinetransform, a discrete fourier transform, a periodogram method, aBartlett method, a Welsh method, or an autoregressive moving averageestimate.
 5. The media of claim 1, wherein determining values for thespectrum likelihood measure comprises identifying a first set offrequency terms that have a higher frequency than a second set offrequency terms.
 6. The media of claim 5, wherein the first set offrequency terms are discarded.
 7. The media of claim 1, whereindetermining values for the spectrum likelihood measure comprisesgenerating repeated random permutations.
 8. The media of claim 7,wherein determining values for the spectrum likelihood measure comprisessampling the resulting permutations utilizing a Bayesian Markov ChainMonte Carlo simulation.
 9. The media of claim 1, the method furthercomprising determining an entropy of the soft pulled time series or thestructured time series.
 10. The media of claim 1, the method furthercomprising rank-ordering the values of the spectrum likelihood measure.11. The media of claim 1, the method further comprising determining adistance between the values of the spectrum likelihood measure and oneor more reference spectra; and selecting one or more reference spectraaccording a classification criteria.
 12. A computer-implemented methodcomprising: receiving, via one or more processors, soft pulled applicantcredit utilization data; determining, via the one or more processors, asoft pulled time series for the applicant credit utilization data;generating, via the one or more processors, a structured time series byscaling the soft pulled time series; determining, via the one or moreprocessors, a frequency domain power spectrum based on the structuredtime series; determining, via the one or more processors, values for aspectrum likelihood measure based at least in part on the frequencydomain power spectrum; scaling, wherein the values of the spectrumlikelihood measure are scaled to produce a power spectrum weight (PS_wt)value for an applicant; generating, via the one or more processors, acomposite risk score by combining the PS_wt values with a plurality ofactuarial model basis characteristics; comparing, via the one or moreprocessors, the likelihood measure to a probability threshold;determining, via the one or more processors, a resultant insurance riskcategory from the result of said comparison; and storing, in anoperational data store, the resultant insurance risk category.
 13. Themethod of claim 12, the method further comprising: providing anincentive to the applicant based at least in part on the resultantinsurance risk category wherein the structured time series comprises apredicted future time series.
 14. The method of claim 12, whereindetermining values for the spectrum likelihood measure comprises usingat least one of a wavelet transform, a discrete cosine transform, adiscrete fourier transform, a periodogram method, a Bartlett method, aWelsh method, or an autoregressive moving average estimate.
 15. Themethod of claim 14, wherein determining values for the spectrumlikelihood measure comprises identifying a first set of frequency termsthat have a higher frequency than a second set of frequency terms. 16.The method of claim 15, wherein the first set of frequency terms arediscarded.
 17. The method of claim 12, wherein determining values forthe spectrum likelihood measure comprises generating repeated randompermutations and sampling the resulting permutations utilizing aBayesian Markov Chain Monte Carlo simulation.
 18. The method of claim12, the method further comprising determining an entropy of the softpulled time series or the structured time series.
 19. A systemcomprising: one or more processors; and computer-readable storage mediahaving computer-executable instructions embodied thereon that, whenexecuted by the one or more processors, facilitate a method comprising:computer-implemented method comprising: receiving soft pulled applicantcredit utilization data; determining a soft pulled time series for theapplicant credit utilization data; generating a structured time seriesby scaling the soft pulled time series; determining a frequency domainpower spectrum based on the structured time series; determining valuesfor a spectrum likelihood measure based at least in part on thefrequency domain power spectrum; scaling the values of the spectrumlikelihood measure are scaled to produce a power spectrum weight (PS_wt)value for an applicant; generating a composite risk score by combiningthe PS_wt values with a plurality of actuarial model basischaracteristics; comparing the likelihood measure to a probabilitythreshold; determining a resultant insurance risk category from theresult of said comparison; and storing, in an operational data store,the resultant insurance risk category.
 20. The system of claim 19,wherein the one or more processors is further configured to facilitatethe method comprising: providing an incentive to the applicant based atleast in part on the resultant insurance risk category.